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| EXR > SEC Filings for EXR > Form 10-Q on 11-May-2009 | All Recent SEC Filings |
11-May-2009
Quarterly Report
Amounts in thousands, except property and share data
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CAUTIONARY LANGUAGE
The following discussion and analysis should be read in conjunction with our "Unaudited Condensed Consolidated Financial Statements" and the "Notes to Unaudited Condensed Consolidated Financial Statements" contained in this report and the "Consolidated Financial Statements," "Notes to Consolidated Financial Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in our Form 10-K for the year ended December 31, 2008. The Company makes statements in this section that are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section in this Form 10-Q entitled "Statement on Forward-Looking Information." Amounts are in thousands (except property and share data and unless otherwise stated).
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations are based on our unaudited condensed consolidated financial statements contained elsewhere in this report, which have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). Certain amounts in the unaudited condensed consolidated financial statements have been restated to reflect the retroactive application of new accounting standards. Our notes to the unaudited condensed consolidated financial statements contained elsewhere in this report and the audited financial statements contained in our Form 10-K for the year ended December 31, 2008 describe the significant accounting policies essential to our unaudited condensed consolidated financial statements. Preparation of our financial statements requires estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions which we have used are appropriate and correct based on information available at the time that they were made. These estimates, judgments and assumptions can affect our reported assets and liabilities as of the date of the financial statements, as well as the reported revenues and expenses during the period presented. If there are material differences between these estimates, judgments and assumptions and actual facts, our financial statements may be affected.
In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require our judgment in its application. There are areas in which our judgment in selecting among available alternatives would not produce a materially different result, but there are some areas in which our judgment in selecting among available alternatives would produce a materially different result. See the notes to the unaudited condensed consolidated financial statements that contain additional information regarding our accounting policies and other disclosures.
OVERVIEW
We are a fully integrated, self-administered and self-managed real estate investment trust, or REIT, formed to continue the business commenced in 1977 by our predecessor companies to own, operate, manage, acquire, develop and redevelop professionally managed self-storage properties. We derive substantially all of our revenues from rents received from tenants under existing leases at each of our self-storage properties, from management fees on the properties we manage for joint-venture partners, franchisees and unaffiliated third parties and from our tenant reinsurance program. Our management fee is equal to approximately 6% of cash collected by the managed properties.
We operate in competitive markets, often where consumers have multiple self-storage properties from which to choose. Competition has impacted, and will continue to impact our property results. We experience seasonal fluctuations in occupancy levels, with occupancy levels generally higher in the summer months due to increased moving activity. Our operating results depend materially on our ability to lease available self-storage units, to actively manage rental rates, and on the ability of our tenants to make required rental payments. We believe we are able to respond quickly and effectively to changes in local, regional and national economic conditions by centrally adjusting rental rates through the combination of our revenue management team and our industry-leading technology systems.
We continue to evaluate a range of new initiatives and opportunities in order to enable us to maximize stockholder value. Our strategies to maximize stockholder value include the following:
† Maximize the performance of properties through strategic, efficient and proactive management. We plan to pursue revenue generating and expense minimizing opportunities in our operations. Our revenue management team will seek to maximize revenue by responding to changing market conditions through our technology system's ability to provide real-time, interactive rental rate and discount management. Our size allows greater ability than the majority of our competitors to implement national, regional and local marketing programs, which we believe will attract more customers to our stores at a lower net cost.
† Expand our management business. Our management business enables us to generate increased revenues through management fees and expand our geographic footprint. This expanded footprint enables us to reduce our operating costs through economies of scale. In addition, we see our management business as a future acquisition pipeline. We expect to pursue strategic relationships with owners that should strengthen our acquisition pipeline through agreements which give us first right of refusal to purchase the managed property in the event of a potential sale.
† Acquire self-storage properties from strategic partners and third parties. Our acquisitions team will continue to selectively pursue the acquisition of single properties and multi-property portfolios that we believe can provide stockholder value. We have sought to establish a reputation as a reliable, ethical buyer, which we believe enhances our ability to negotiate and close acquisitions. In addition, we believe our status as an UPREIT enables flexibility when structuring deals.
† Develop new self-storage properties. We currently have joint venture and wholly-owned development properties and may continue to selectively develop new self-storage properties in our core markets. Our development pipeline through 2010 includes 25 projects.
Recent U.S. and international market and economic conditions have been unprecedented and challenging, with tighter credit conditions and slower growth through the second half of 2008 and the first quarter of 2009. For the three months ended March 31, 2009, continued concerns about the systemic impact of inflation, energy costs, geopolitical issues, the availability and cost of credit and other macro-economic factors have contributed to increased market volatility and diminished expectations for the global economy and increased market uncertainty and instability. Continued turbulence in U.S. and international markets and economies may adversely affect our liquidity and financial condition, and the financial condition of our customers. If these market conditions continue, they may result in an adverse effect on our financial condition and results of operations.
PROPERTIES
As of March 31, 2009, we owned or had ownership interests in 628 operating self-storage properties. Of these properties, 280 are wholly-owned and 348 are held in joint ventures. In addition, we managed an additional 70 properties for franchisees or third parties bringing the total number of operating properties which we own and/or manage to 698. These properties are located in 33 states and Washington, D.C. As of March 31, 2009, we owned and/or managed approximately 51 million square feet of space with more than 300,000 customers.
Our properties are generally situated in convenient, highly visible locations clustered around large population centers such as Atlanta, Baltimore/Washington, D.C., Boston, Chicago, Dallas, Houston, Las Vegas, Los Angeles, Miami, New York City, Orlando, Philadelphia, Phoenix, St. Petersburg/Tampa and San Francisco/Oakland. These areas all enjoy above-average population growth and income levels. The clustering of assets around these population centers enables us to reduce our operating costs through economies of scale.
We consider a property to be in the lease-up stage after it has been issued a certificate of occupancy, but before it has achieved stabilization. We consider a property to be stabilized once it has achieved either an 80% occupancy rate for a full year measured as of January 1, or has been open for three years. Although leases are short-term in duration, the typical tenant tends to remain at our properties for an extended period of time. For properties that were stabilized as of March 31, 2009, the median length of stay was approximately eleven months.
Our property portfolio is a made up of different types of construction and building configurations depending on the site and the municipality where it is located. Most often sites are what we consider "hybrid" facilities, a mix of both drive-up buildings and multi-floor buildings. We have a number of multi-floor buildings with elevator access only, and a number of facilities featuring ground-floor access only.
The following table sets forth additional information regarding the occupancy of our stabilized properties on a state-by-state basis as of March 31, 2009 and 2008. The information as of March 31, 2008 is on a pro forma basis as though all the properties owned and/or managed at March 31, 2009 were under our control as of March 31, 2008.
Stabilized Property Data Based on Location
Company Pro forma Company Pro forma Company Pro forma
Net Net
Number of Number of Rentable Rentable
Units as Units Square Square
of as of Feet as of Feet as of Square Foot Square Foot
Number of March 31, March 31, March 31, March 31, Occupancy % Occupancy %
Location Properties 2009(1) 2008 2009(2) 2008 March 31, 2009 March 31, 2008
Wholly-owned
properties
Alabama 1 585 585 76,740 76,125 82.9 % 79.6 %
Arizona 5 2,843 2,850 347,138 347,268 80.9 % 87.7 %
California 46 36,883 37,643 3,625,493 3,654,319 80.8 % 83.2 %
Colorado 8 3,804 3,802 476,409 475,884 81.0 % 86.1 %
Connecticut 3 2,028 2,036 178,115 178,105 77.4 % 76.0 %
Florida 31 20,551 20,642 2,185,979 2,186,151 79.3 % 81.5 %
Georgia 12 6,433 6,446 837,192 835,486 81.0 % 84.9 %
Hawaii 2 2,862 2,873 151,445 150,036 73.7 % 80.5 %
Illinois 5 3,322 3,268 342,092 339,389 77.1 % 80.3 %
Indiana 6 3,518 3,524 413,896 415,107 83.3 % 89.5 %
Kansas 1 506 502 49,990 49,940 83.0 % 85.6 %
Kentucky 3 1,584 1,592 194,101 194,470 83.9 % 87.8 %
Louisiana 2 1,407 1,409 148,975 148,155 86.2 % 86.5 %
Maryland 10 7,950 7,930 847,179 843,399 80.8 % 83.1 %
Massachusetts 26 15,272 15,289 1,573,560 1,573,186 80.2 % 82.2 %
Michigan 2 1,031 1,034 134,866 133,346 84.9 % 88.0 %
Missouri 6 3,156 3,156 374,532 375,557 79.1 % 85.7 %
Nevada 2 1,242 1,257 132,115 132,365 85.8 % 86.6 %
New Hampshire 2 1,006 1,006 125,691 125,909 82.5 % 84.9 %
New Jersey 23 18,860 18,865 1,838,356 1,834,418 82.4 % 84.2 %
New Mexico 1 542 535 69,155 68,090 78.8 % 77.3 %
New York 10 8,707 8,698 613,941 609,832 78.2 % 80.7 %
Ohio 4 2,026 2,025 273,482 273,392 86.2 % 82.3 %
Oregon 1 767 765 103,690 103,450 84.9 % 92.3 %
Pennsylvania 9 6,585 6,570 688,600 682,880 83.0 % 81.8 %
Rhode Island 1 730 728 75,521 75,361 85.4 % 88.1 %
South Carolina 3 1,553 1,554 178,749 178,719 82.7 % 91.4 %
Tennessee 6 3,488 3,511 473,997 476,212 81.2 % 85.8 %
Texas 20 12,429 12,463 1,402,770 1,402,835 83.8 % 87.0 %
Utah 3 1,540 1,534 210,876 210,640 84.1 % 92.7 %
Virginia 5 3,581 3,578 346,907 347,509 83.5 % 83.1 %
Washington 4 2,553 2,538 308,015 305,815 86.4 % 85.4 %
Total
Wholly-Owned
Stabilized 263 179,344 180,208 18,799,567 18,803,350 81.3 % 83.9 %
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Company Pro forma Company Pro forma Company Pro forma
Net Net
Number of Number of Rentable Rentable
Units as Units Square Square
of as of Feet as of Feet as of Square Foot Square Foot
Number of March 31, March 31, March 31, March 31, Occupancy % Occupancy %
Location Properties 2009(1) 2008 2009(2) 2008 March 31, 2009 March 31, 2008
Joint-venture
properties
Alabama 3 1,709 1,708 205,958 205,613 83.0 % 86.9 %
Arizona 11 6,851 6,902 751,664 751,486 82.2 % 85.5 %
California 78 56,001 56,063 5,712,646 5,719,360 83.0 % 87.2 %
Colorado 2 1,334 1,332 158,433 158,213 82.4 % 81.8 %
Connecticut 8 5,990 5,985 692,150 691,342 77.0 % 76.3 %
Delaware 1 587 589 71,655 71,655 82.5 % 87.4 %
Florida 23 19,231 19,246 1,938,827 1,940,323 79.2 % 82.6 %
Georgia 3 1,877 1,889 245,270 246,926 79.5 % 79.2 %
Illinois 7 4,671 4,678 503,666 504,661 81.1 % 83.3 %
Indiana 8 3,154 3,153 405,109 406,503 77.9 % 84.5 %
Kansas 3 1,214 1,216 160,920 163,105 78.3 % 82.9 %
Kentucky 4 2,284 2,285 268,334 268,553 82.3 % 86.6 %
Maryland 13 10,212 10,218 1,013,638 1,013,143 82.4 % 84.4 %
Massachusetts 17 9,253 9,258 1,046,895 1,047,155 78.6 % 80.6 %
Michigan 10 5,939 5,952 785,503 784,013 82.2 % 86.0 %
Missouri 2 956 952 117,695 118,195 80.2 % 87.2 %
Nevada 7 4,617 4,642 619,433 620,649 81.7 % 84.9 %
New Hampshire 3 1,315 1,321 137,434 137,554 82.1 % 87.1 %
New Jersey 21 15,680 15,694 1,648,095 1,654,843 79.6 % 81.1 %
New Mexico 9 4,688 4,689 538,504 537,660 79.3 % 79.2 %
New York 22 23,708 23,720 1,832,377 1,834,034 83.5 % 86.1 %
Ohio 11 5,018 5,018 754,187 748,217 78.1 % 82.7 %
Oregon 2 1,292 1,292 136,660 136,980 79.6 % 89.3 %
Pennsylvania 10 7,226 7,216 764,500 762,894 83.4 % 85.0 %
Rhode Island 1 607 610 73,880 73,880 71.9 % 73.5 %
Tennessee 22 11,773 11,786 1,548,080 1,547,978 81.0 % 86.6 %
Texas 18 11,732 11,810 1,549,648 1,533,782 80.1 % 78.9 %
Utah 1 520 520 59,000 59,500 86.0 % 84.5 %
Virginia 16 11,280 11,284 1,191,403 1,191,948 83.3 % 84.2 %
Washington 1 546 551 62,730 62,730 86.6 % 92.3 %
Washington, DC 1 1,536 1,536 102,003 102,003 88.7 % 91.0 %
Total Stabilized
Joint-Ventures 338 232,801 233,115 25,096,297 25,094,898 81.3 % 84.2 %
Managed
properties
Alabama 2 825 830 95,175 95,390 81.0 % 89.4 %
California 6 3,935 3,910 489,110 488,785 73.3 % 76.5 %
Colorado 1 339 339 31,639 31,639 83.8 % 93.1 %
Florida 1 650 653 51,966 52,096 82.1 % 87.4 %
Georgia 5 2,719 2,753 405,485 415,918 71.2 % 79.2 %
Illinois 4 2,325 2,331 262,845 248,780 68.8 % 71.2 %
Maryland 6 4,171 4,144 429,305 427,758 82.4 % 85.0 %
Massachusetts 1 1,198 1,204 108,880 108,980 57.6 % 61.1 %
Nevada 2 1,576 1,576 171,555 171,555 81.8 % 87.7 %
New Jersey 4 3,906 3,916 362,620 362,787 77.9 % 76.5 %
New Mexico 2 1,108 1,102 131,867 131,707 82.1 % 86.5 %
New York 1 703 706 77,955 78,075 78.4 % 84.2 %
Pennsylvania 3 1,388 1,386 177,811 176,211 68.5 % 72.7 %
Tennessee 2 882 886 130,865 130,750 85.0 % 91.3 %
Texas 3 1,650 1,654 194,935 194,995 87.3 % 89.5 %
Utah 1 371 371 46,855 46,955 98.2 % 98.8 %
Virginia 4 2,782 2,788 270,202 269,977 80.3 % 83.6 %
Washington, DC 2 1,255 1,255 111,759 111,759 83.4 % 81.9 %
Total
Stabilized
Managed
Properties 50 31,783 31,804 3,550,829 3,544,117 77.2 % 80.8 %
Total
Stabilized
Properties 651 443,928 445,127 47,446,693 47,442,365 81.0 % 83.8 %
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(2) Represents net rentable square feet as of March 31, 2009, which may differ from March 31, 2008 net rentable square feet due to unit conversions or expansions.
The following table sets forth additional information regarding the occupancy of our lease-up properties on a state-by-state basis as of March 31, 2009 and 2008. The information as of March 31, 2008 is on a pro forma basis as though all the properties owned and/or managed at March 31, 2009 were under our control as of March 31, 2008.
Lease-up Property Data Based on Location
Company Pro forma Company Pro forma Company Pro forma
Net Net
Rentable Rentable
Number of Number of Square Square
Units as Units Feet as Feet as
of as of of of Square Foot Square Foot
Number of March 31, March 31, March 31, March 31, Occupancy % Occupancy %
Location Properties 2009(1) 2008 2009(2) 2008 March 31, 2009 March 31, 2008
Wholly-owned
properties
California 6 4,283 1,349 463,843 152,495 33.3 % 44.1 %
Florida 1 816 - 71,545 - 18.3 % 0.0 %
Illinois 4 2,739 718 276,285 79,250 28.5 % 17.9 %
Maryland 2 1,397 635 149,937 79,958 32.1 % 15.1 %
Massachusetts 3 2,066 2,033 215,267 212,412 58.8 % 65.3 %
South Carolina 1 618 513 73,857 67,045 70.9 % 88.9 %
Total
Wholly-Owned
Lease-up 17 11,919 5,248 1,250,734 591,160 37.9 % 49.3 %
Joint-venture properties
California 3 1,984 2,045 253,087 253,257 50.8 % 35.5 %
Florida 1 918 772 113,565 113,485 39.2 % 56.2 %
Illinois 2 1,808 1,813 190,733 190,533 73.4 % 63.7 %
Maryland 1 853 939 71,349 73,672 72.3 % 62.0 %
New Jersey 2 1,347 635 117,383 57,360 24.0 % 24.7 %
Rhode Island 1 495 500 55,965 55,645 53.7 % 44.1 %
Total Lease-up Joint-Ventures 10 7,405 6,704 802,082 743,952 52.7 % 48.3 %
Managed properties
California 1 1,053 - 100,040 - 20.1 % 0.0 %
Colorado 1 536 - 60,845 - 54.8 % 0.0 %
Florida 3 2,040 926 203,001 78,130 18.6 % 10.5 %
Georgia 7 4,738 836 662,352 147,469 28.7 % 50.0 %
Massachusetts 2 1,591 1,592 151,494 151,939 45.8 % 38.0 %
New Jersey 1 860 862 77,905 78,030 46.0 % 34.9 %
Pennsylvania 2 1,995 1,994 173,244 174,186 27.2 % 23.8 %
Tennessee 1 508 508 69,550 67,050 51.1 % 52.0 %
Utah 1 657 - 75,602 - 9.7 % 0.0 %
Virginia 1 480 - 63,809 - 27.0 % 0.0 %
Total Lease-up Managed 20 14,458 6,718 1,637,842 696,804 27.2 % 23.8 %
Total Lease-up Properties 47 33,782 18,670 3,690,658 2,031,916 37.7 % 44.0 %
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(2) Represents net rentable square feet as of March 31, 2009, which may differ from March 31, 2008 net rentable square feet due to unit conversions or expansions.
RESULTS OF OPERATIONS
Comparison of the three months ended March 31, 2009 and 2008
Overview
Results for the three months ended March 31, 2009 include the operations of 628 properties (285 of which were consolidated and 343 of which were in joint ventures accounted for using the equity method) compared to the results for the three months ended March 31, 2008, which included the operations of 607 properties (262 of which were consolidated and 345 of which were in joint ventures accounted for using the equity method).
Revenues
The following table sets forth information on revenues earned for the periods
indicated:
Three Months Ended March 31,
2009 2008 $ Change % Change
Revenues:
Property rental $ 59,409 $ 57,024 $ 2,385 4.2 %
Management and franchise fees 5,219 5,077 142 2.8 %
Tenant reinsurance 4,619 3,478 1,141 32.8 %
Other income 7 128 (121 ) (94.5 )%
Total revenues $ 69,254 $ 65,707 $ 3,547 5.4 %
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Property Rental - The increase in property rental revenue for the three months ended March 31, 2009 consists of $2,093 associated with acquisitions completed during 2009 and 2008 and $735 from increases in occupancy and rental rates at lease-up properties. These increases were offset by a decrease of $443 in revenues at stabilized properties due mainly to a decrease in occupancy compared with the same period in the prior year.
Management and Franchise Fees - Our taxable REIT subsidiary, Extra Space Management, Inc. manages properties owned by our joint ventures, franchisees and third parties. Management and franchise fees generally represent 6% of cash collected from properties owned by third parties, franchisees and unconsolidated joint ventures. Revenues from management fees and franchise fees have remained fairly stable compared to the previous year.
Tenant Reinsurance - The increase in tenant reinsurance revenues is due to our . . .
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